Chapter 4: Anatomy of a recall: After

After

Once you’ve been through a product recall, it’s time to take stock, clean up, and put processes in place to make sure that incident does not happen again.

Product recalls happen all the time, but not to everyone simultaneously. When they do happen, a major recall can quickly develop into a media nightmare as the brand is villainised in the press and consumer trust is eroded.

In the worst case scenario this brand damage, as well as the sometimes crippling cost of actually recalling the product, can put the very future of a company at risk. But should a company survive a product recall event intact, there are a number of lessons that can be learned from the product recall process, as long as the company is prepared to learn from its mistakes and listen to the facts of what went wrong, and why.

The first step in the aftermath of a product recall, once the dust has started to settle, is to take a step back and analyse what went wrong in the first place and led to the product needing to be recalled.

Security Exchange 24 managing director Rupert Reid says the current economic difficulties coupled with increased globalisation and the growing interconnectivity of businesses means that quality assurance is being pushed to the limit, particularly at the lower end of the supply chain.

“There are a couple factors driving product recalls,” he says. “The first is the global economy, which means there isn’t much money and people are being squeezed on prices, and the second is the complexity of supply chains.

“Most recalls are where quality control has failed, as opposed to any criminal activity. It is driven by the fact you have people being squeezed on price, and when you get to the lower end of the supply chain it is just human nature that quality control will fail.”

To help reduce the risk of suppliers being driven to failure by price pressures, Reid recommends that businesses examine the contracts they have in place with their partners to ensure that there are measures to reduce the risk of mistakes happening and that there are agreements for resiliency plans to be implemented should the worst happen.

“If you look at the contracts that come through when you are engaged as a supplier, there is a tendency not to turn around and mirror those obligations down the supply chain,” he says.

“You are excited you’ve won new business and you put the contract in the drawer and get on with it, but that should really be tested and see what happens in the event of a product recall. You need to ask yourself the questions: ‘Who would we be dealing with?’; ‘Do we have appropriate lines of communication open?’.

“The first step to preventing a product recall is working out what you are responsible for as a supplier, as well as what your suppliers and partners are responsible for in the supply chain. One of the biggest challenges we have when responding to a product recall is getting companies to understand where the responsibility for the supply chain lies.”

The second part of the learning process is understanding how effectively the product recall plan was carried out (assuming you had one) and where there were deficiencies in the process that resulted in missed steps or delays.

Stericycle ExpertSOLUTIONS vice president sales, marketing and client services Mike Good says such a qualitative analysis of the process as a whole is vital for mitigating future damages should another product recall event happen, and the learnings can even be made without having to have gone through a real-life product recall.

“One of the things you learn from a product recall is how to be more effective should another recall happen,” he says.

“We recommend companies develop a product recall plan and test that by holding a mock recall. That helps identify any areas that need improvements or assistance from an outside partner and you can identify gaps in procedures and recognise how outdated customer and consignment information is.

“When a company has a recall, it is something they don’t necessarily practice all the time, but everyone has to know exactly what to do because most of the time in a recall speed is paramount and how fast you react to situations is critical for the success of the recall, and you have to practice that.”

One thing that often comes to light in such analyses is the sheer amount of work that is required to effectively manage a product recall.

Reid says companies are frequently surprised by this aspect of a recall and are not aware that resourcing limits can often have a damaging effect on the recall process.

“Most people don’t realise a product recall involves so much work,” he says. “These are relatively extraordinary events, they are happening all the time but not to everyone, so when something comes along that means you have to recall a product you have to talk to people you haven’t talked to before, consider logistics that you haven’t put in place, and people don’t realise there is so much involved in it.

“Companies don’t have sufficient resource to deal with it and can be overwhelmed with the number of calls coming in to a call centre [once an announcement about the recall has been made].”

Good says that companies will often need outside assistance to handle such surge events, otherwise they risk rising complaints and a PR disaster.

“The number one reason a product recall fails is that organisations do not anticipate the volume of enquiries that a recall might create,” he says.

“If they have a call centre that can handle 100,000 calls a day, but they are recalling a product they sell to millions, they could get 500,000 calls a day but without the capacity to handle that kind of volume. That creates a horrific experience for the consumer, and often leads to a social media backlash.

“That’s where it is critical that the company finds a partner that can handle that volume of calls. If someone calls us today, we could have 800 people in a call centre tomorrow ready to take those calls. It’s about speed and resilience, and that’s critical to the overall success of a recall.”

In the midst of a social media storm, Reid says speed is of the essence to prevent a situation escalating out of control. Following a product recall being completed, companies should analyse their social media, and wider communications response, and make adjustments accordingly when a communications plan has failed to deliver the required outcomes.

“Responses on social media and external communications are extremely important,” he says. “The speed of social media and the speed at which it works against you is one of the issues that really gets to people and causes damage to the brand. The other issue is subrogation, the confusion over who is responsible for the product at what stage of the supply chain, [and consumers not knowing who is responsible for handling the recall].”

As well as analysing the effectiveness, or otherwise, of the product recall plan, companies also need to analyse the effectiveness of the teams that managed the situation, and if the right people were involved at the right stages to ensure the plan was executed properly.

“Senior level people should be involved, and a recall plan that sets out who the recall coordinator is and who the team members are, including external experts such as lawyers and PR firms, is vital,” Good says. “You also have to have the proper senior level people involved, because a lot of the time they are the public face of the company and they need to understand the inner-workings of what is going on to be able to communicate that effectively.”

“The more you can tell the press the more you can alleviate rumours and brand damage,” he adds.

Reid says that this team structure needs to reflect the organisational structure of the business, and be led from the very top level of the organisation.

“The team has to reflect the functions, rank and command chain of the organisation itself,” he says. “In a big recall you have to have all those functions operating together, and the person at the top of that team needs to look at what the strategic impact is and what it means for the brand’s reputation – the big picture stuff.

“That person has to be someone like the CEO. If that awareness is not there at the top, then when something happens and the press comes to speak to the CEO then it all goes wrong as nobody bothered to get them involved in the process and they don’t know what is going on.”

Ultimately, Reid says the best thing to do in the wake of a product recall is to call a meeting of all the stakeholders in a crisis management situation and inspect what went wrong and why, and what can be done to ensure the same mistakes don’t happen again.

“The most valuable tool is to be able to grab the decision makers together for a couple hours and look at what could go wrong again and check that the right measures are now in place,” he says. “Getting people together in a room and talking about what could go wrong is difficult.

“When you look at the way businesses are run, it is extremely difficult for people to get the proper learning processes in place, but if you can convert that learning back into the preventative measures, then that is one of the biggest things people can do to mitigate the risks of product recalls.”

And this is an important step to take, otherwise the next product recall could spell the end of the business. Better still, have the meeting before there is even a need for a product recall. Then you may be able to prevent the recall event from happening in the first place.

About the author

Matt Scott

Matt Scott
Matt Scott started his working life as an actuarial associate consultant after completing an undergraduate degree in mathematics and statistics at the University of Bath with a heavy focus on real-world applications, finance and research.

During his four years in the actuarial field, Matt completed a two-year master’s degree in actuarial finance at Imperial College Business School. Some of the topics covered were enterprise risk management, healthcare economics, corporate finance, economics, investments, insurance and pensions.

The course also involved a year-long research project for the actuarial profession, with Matt focusing on Solvency II regulations and the impact the introduction of similar legislation would have on UK pension schemes.

In his role as an actuarial consultant, Matt gained expertise in actuarial calculations, financial modelling and compliance, and completed professional examinations set by the Institute and Faculty of Actuaries. His career also took him to India for two months, after which he managed an offshore team performing specialist actuarial calculations.
Matt then decided to leave the actuarial profession, and acquired a postgraduate diploma in multimedia magazine journalism before joining StrategicRISK Asia’s sister magazine Insurance Times at the beginning of 2013.

Since then, Matt has worked for a number of publications in the financial and risk management sector, most recently working as a freelance writer, editor and research consultant for titles such as StrategicRISK, Insurance Times and Professional Manager, as well as conducting research on the insurance industry and global construction markets.

Welcome to The Journal

Welcome to The Journal, StrategicRISK ’s series of interactive online books for professionals in the corporate risk management and insurance sector. The Journal is published in partnership with Swiss Re Corporate Solutions. For more information about StrategicRISK click here.